Board lowers fund's investment for second time in 14 months

The board overseeing California's teacher pension system on Thursday lowered the fund's investment forecast for the second time in 14 months in a move that acknowledges the financial strain of lower market returns in the years ahead.

The California State Teachers' Retirement System board of directors voted 9-1 to lower its assumed annual investment return from 7.75 percent to 7.5 percent. The move will increase the system's projected unfunded liability by $5.9 billion.It also is important because as the fund makes less money through investments, it needs more from rank-and-file teachers, school districts or the state's general fund.

CalSTRS, as it is known in California, is the nation's second largest public pension fund, behind a separate California fund representing state and local government workers.Public pension systems have come under scrutiny for what some view as generous benefits and unsustainable liabilities for state and local governments.

Gov. Jerry Brown, a Democrat, has presented a pension-reform plan that is now before the Democratic-controlled Legislature and has urged lawmakers to address the problems this year.

He sent a letter Thursday to lawmakers pushing them again to act.In acting Thursday, pension board members said they would err on the side of caution amid stock market volatility.

"I would prefer the risk associated with adjusting the rate of return a little bit lower and hopefully we'll be surprised at the upside, rather than taking the higher rate of return with a less than 50 percent probability in that we'll be disappointed on the downside," said attorney Michael Lawson, who was appointed by Gov. Jerry Brown in October.

The board last lowered the assumed rate of return in December 2010, when it was reduced from 8 percent. That was the first time in 15 years it had taken such action.